Jason Nixon, Treasury President and Minister of Finance Source: CTV News Edmonton
However, there were several dark clouds covering the sun in the first quarter numbers that merit a mention.
AIMCo has had another trying quarter like other investment managers
- Investment income is down $2.9-billion “due entirely to negative Heritage Fund and endowment fund income as financial markets deteriorated. These market losses could be reversed although with interest rates rising bond prices will continue to fall.”
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Hedging debt service costs hasn’t worked out very well
- Even though debt is declining significantly, debt servicing costs are rising because of debt swap costs. This is unusual because with rates at historic lows one would want to protect against rising rates by entering interest rate swaps where Alberta would be compensated for rising This hedging program is expected to costs the treasury an additional $115-million.
Selling oil is costlier
- One of the downsides of higher oil prices is that it will cost nearly $300-million more to sell oil because of higher prices and volumes. This is a good news story for Albertans but particularly for those market intermediaries who are enjoying higher commissions from one of the largest oil sellers in North America.
Capital decisions remain in the hands of provincial ministers
- Capital spending is increasing by $389-million with three=quarters going to capital investment most to the provincial transportation department. Paving roads is popular prior to general elections.
Public sector continues to be starved
- The only sizable increase in the ministry budgets was in energy due to a decision to include $866-million in crude-by-rail expenses in this fiscal year. But the write-down was recorded in last year’s provincial financial statements (page 7). Adding this expense which appears to be booked in 2022-23 is passing strange and must have been discussed with the Auditor General. Adding this expenditure would obviously reduce the size of the surplus.
- Besides a $52-million boost to education mainly for the financial impact of the agreement with ATA. In addition, $22-million was added to Justice and Solicitor General for Crown Prosecutor compensation and victims of crime programs.
- AISH was not indexed as many social agencies and the NDP advocated for. The health budget remains on track even though emergency departments are suffering long waits and staffing shortages become endemic.
- The continued lack of operating support for educational, health and other government services will come back to haunt future governments, As the quality of public services degrades in the face of rising costs and declining morale, Alberta’s appeal to investors and workers will be increasingly impaired.
On the economic front, the assumptions appear to be prudent with oil at $92/barrel WTI for the whole year and gas prices raised by a $2.40 (Cdn$/GJ). The economic update assumes GDP growth of 4.9 per cent this year falling to 3.5 per cent next year. The report lists many positives in the outlook:- Elevated, energy prices- though volatile
- Robust corporate profits
- Strong energy investments. This is qualified by acknowledging that companies are investing only 30-40% of their cash flow. This is very different than in previous oil price recoveries. This fits with the thesis of a mature industry that is now pumping out cash for the shareholders.
- Cost pressures will moderate.
- Wage growth to pick up. The Alberta government was remarkably fortunate in “convincing” public sector unions to accept nominal increases for several years. Agreements were settled before inflation was being considered more than “transitory” by central bank heads. One of the dangers of accepting the pronouncements of authorities.
- Modest housing slowdown offset by remarkable population growth of two per cent in 2022.
Danielle Smith Source: Mountain View Today The Update of course has been overshadowed by discussions of the Alberta Sovereignty Act and what a Danielle Smith government might look like. An excellent piece on such a scenario written by Pascal Ryffel of Alberta Counsel can be found here.
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